Does Behavior Follow Belief?

March 5, 2014

Beliefs don’t make you a better person, a healthier person, or a financially successful person…your behavior does. The mind is a powerful instrument. Stories, thoughts, and visualizations (real and imagined) impact how you act and how you behave.

Fixed Mindset vs. Growth Mindset

Dr. Carol Dweck, a psychology professor at Stanford University has done extensive research on what she terms “the fixed mindset” versus “the growth mindset”. The fixed mindset believes abilities and attitudes are fixed. The growth mindset believes abilities can be developed with effort, teaching, and persistence.

How does this impact us from an investment/financial perspective? Well, the impact can be quite large. If you believe, as we do, that markets work, then ultimately you invest (behave) accordingly. Your behavior follows your belief. Conversely, if you believe the key to financial success comes from selecting the best stocks, you invest in that manner. Again, your behavior follows your belief. From our role as advisors, we find that individuals with a “growth mindset” can sometimes change both their beliefs and actions over time.

Think about when you were a child. The “good behavior” that preceded the visit to Santa Claus was based on your belief that Santa was watching. Behavior followed belief. Ok, you aren’t a child anymore and your beliefs have changed. Beliefs, however, are formed over time and can harden, making them difficult to dislodge. Facts, research, and evidence often do little to change deeply held beliefs. Behavior only changes when beliefs change first.

Actions Mean More than Words

We live in a time where words and actions often are disconnected. As one observer put it recently, “a word fog.” Ultimately, actions mean more than words, and like it or not, actions (behaviors) tell us about our true beliefs.

About James E. Wilson, CFP®

James E. Wilson, CFP® is founder of J.E. Wilson Advisors, the first fee-only South Carolina-based financial practice which he formed in 1982. James has been serving his clients for 30 years. All posts by James E. Wilson, CFP®